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India may soon have a data protection and confidentiality law, according to a senior Indian government official.

“We are working on the draft of the bill, and it will most likely be on the lines of similar legislation on data privacy by the European Union,” said Rajeeva Ratna Shah, secretary to the Indian government’s ministry of communications and information technology, on the sidelines of an industry seminar on business process outsourcing (BPO) and other IT-enabled services in Bangalore on Thursday.

The absence of data privacy legislation in India has proved to be a handicap to U.S. companies outsourcing BPO to Indian companies, because of “safe harbour” regulations in the U.S. on moving personal data from the country to locations abroad. A number of companies outsourcing to India use techniques to mask or scramble data so that the data cannot be traced back to the relevant individuals. U.S. safe harbour rules were put into place to meet the requirements of 1995 European Union privacy legislation and to facilitate transfer of data from Europe to the U.S.

However, once the new data protection rules are in force in India, companies outsourcing to India are unlikely to immediately dismantle the systems they have in place and move data more freely to India, according to Kevin Campbell, president and chief operating officer of Exult Inc., a BPO company in Irvine, California, that has a call centre operation in India. “There is the legal perspective on this, and what clients are comfortable with,” he said. “Whether we move more data from the US to India will also depend on how our customers view it.”

A key concern at the seminar, hosted by the Delhi-based National Association of Software and Service Companies (NASSCOM), was the growing opposition in the U.S. and Europe to outsourcing and the moving of jobs to India. Some state legislatures in the U.S., such as New Jersey’s, are considering a ban on giving government business to IT companies that outsource work outside the U.S.

However, the popular view at the seminar, including among participants from industry in the U.S., was that economic considerations would ensure that outsourcing will continue. India’s revenues from BPO and related services are expected to grow more than 50 percent year-on-year over the next four to five years, according to Kiran Karnik, president of NASSCOM.

“There is always a political and economic argument when outsourcing takes place, between the country that is outsourcing and the country that it is outsourced to,” said Shah. “Industries in the outsourcing country are acting on an economic compulsion, and had they not to outsource, their profits would be in question, and instead of losing some jobs, all the jobs could get lost. So as long as the economic argument remains predominant, there is nothing for Indian industry to fear.”

Indian government officials have stated that India would take up the issue of the proposed legislation in the U.S. at the World Trade Organization (WTO). Arun Jaitley, the country’s commerce minister, said this week in New York that U.S. visa regulations for Indian IT workers and attempts by some states in the U.S. to put curbs on outsourcing were against the spirit of the WTO, and that he would take up the matter with U.S. authorities during his visit.

However, India may not have a case before the Geneva-based WTO, as it is not a signatory to the Agreement on Government Procurement (GPA), according to Karnik. The GPA, which has only a few WTO members as signatories, aims to give suppliers in signatory countries access to government business in other signatory countries.

“We think the economic factors are very compelling and we may not need to take a legalistic view on the proposed legislation in some states in the U.S.,” Karnik added.